The Brazilian IRS is responsible for regulating the registration of all legal entities carrying on business/activities in Brazil, including, but not limited to, foreign companies that own rights in Brazil regarding real estate, vehicles, vessels, airplanes, bank accounts, investments in the financial and capital markets, and equity participation in Brazilian companies, among others. This registration is mandatory for all Brazilian and foreign companies that invest in Brazil.

Among the rules provided by Normative Instruction No. 1.634, of particular importance are those connected with the obligation to provide detailed information on the corporate structure of registered entities. As from January 1, 2017, companies will be required not only to submit documents regarding the individual authorized to represent them, but also to disclose the full corporate chain up to its final beneficiaries.

A final beneficiary is the individual who holds, controls or significantly influences the registered company, which is deemed to occur whenever he or she (i) holds, directly or indirectly, more than 25% of the equity of the registered entity, or (ii) holds or exercises preponderance, either directly or indirectly, over the corporate decisions and has the power to indicate most of the company’s administrators, even though they may not control it. Also, the individual on behalf of whom a transaction is conducted is deemed as final beneficiary.

Such requirement will come into force on January 1, 2017, and must be observed either for the registration of new entities and the first updating of the existing registrations. In relation to foreign companies, those regulations provide a 90-day term to present their final beneficiaries and required documents, counting from the filing of the request for a CNPJ. As to existing registries, companies must provide information concerning their final beneficiaries in the first registration update, or by December 31, 2018, whichever occurs first.

Entities defaulting in providing the required information on their final beneficiaries to the Brazilian IRS may have their CNPJ suspended and may be prohibited from carrying on transactions with banks, including the use of bank accounts, the performance of financial investments, and the granting of loans. Such prohibition is not applied to transactions concerning return of the investment to its country of origin nor to the fulfillment of obligations assumed before the suspension. It is worth pointing out that the legality of such penalization could be challenged on the grounds that it does not derived from a proper Law, but rather from Normative Instruction.